Bega Cheese: Getting the deal done

Bega Cheese: Getting the deal done


Bega Cheese chairman Barry Irvin in Sydney on Friday.

Bega Cheese chairman Barry Irvin in Sydney on Friday.

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Bega chairman Barry Irvin's frank take on business ethics.

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BEGA Cheese’s growth from a single factory farmer co-operative to one of the largest dairy businesses in Australia has been built on the ability to remain relevant and to retain trust and loyalty.

That, and doing deals with competitors.

Barry Irvin, the man who has lead the once-little regionally based operation with a staff of 80 to a 900-worker publicly-listed company which owns some of Australia’s most iconic food brands, believes strongly in sharing dreams and fears.

Even with those trying to grasp market share from you.

Mr Irvin said his early years as chairman of Bega, going back almost two decades, consisted of plenty of sharing with industry colleagues.

“Many were predicting poor old Bega down on the lower South Coast of NSW with just one per cent of the nation’s milk and a naive chairman would not be long for this world,” he told a NSW Farm Writers Association lunch in Sydney last week.

“It was not an unreasonable assumption.

“But while people would politely listen to me, they would also offer advice on how I might improve things. Those people included many of our competitors, many very large companies.

“So at Bega, we built a business with the help of many.”

Being honest - with suppliers, customers and partners - was the foundation to building the trust needed to go forward, he said.

Never has that been more obvious than in the past year.

“Everyone knows how difficult things have been on dairy farms,” Mr Irvin said.

“Producers want to know why Bega can’t beat the market and pay more.

“The answer is: It’s never been done.

“Quite frankly a demonstration of that occurred a year ago, when a dairy business did say they could do that - pay more more than what the market would return.

“The consequences showed just how incorrect and dangerous that was.”

Now widely considered one of Australian agribusiness’ greatest success stories, Bega Cheese has constantly raised eyebrows.

As the dairy industry came into deregulation in the early 2000s, Bega did a distribution deal with one of its biggest competitors, Fonterra.

“That involved trusting someone else with the stewardship of our brand,” Mr Irvin said.

“But it created the cash flow, stability and strength we needed and we shared that with our farmers.

“We set about being alert and agile.”

By 2005, those at Bega started to think their business model was too replicable.

If you’re making money one thing is certain - someone else will try to do it the same way.

So, in the middle of a ten-year drought, Bega looked for acquisitions.

Thus the deal with Victoria’s Tatura Milk deal, which allowed Bega to create something with size and scale in cheese and infant formulae.

In 2009 came the deal with Kraft, another big competitor and Bega cemented its place as the largest and most relevant player in Australian cheese.

By 2011, it was clear the business needed to restructure, Mr Irvin said.

It listed on the Australian Securities Exchange, seamlessly many would argue.

“All those things feared about listed companies can be proven wrong,” Mr Irvin said.

The move created enormous value for Bega’s farmer suppliers.

Fast forward to today, and Bega has just built a sixth site to can infant formulae.

Three out of its six sites handle milk, the others handle ingredients.

“So when we looked to the next acquisition we took into account we are dealing more with food retailers and directly with brands,” Mr Irvin said.

“We had to add more capacity as a branded player.

“If you are an Australian food player what would be the top brand you’d want, the one that people will never buy generic?”

Vegemite.

Bega Cheese early this year announced the $460 million acquisition from Mondelez International of a portfolio of iconic food brands and manufacturing capability including Vegemite, peanut butter, salad dressings and other products.

Yes it surprised the market, Mr Irvin acknowledge.

But the market “took the view we have separated ourselves from the sharks and it has responded accordingly”, he said.

There is no rocket science behind what Bega has done, Mr Irvin said.

Just an underlying view of business ethics and desire to challenge what the future holds.

That is ongoing at Bega.

“When we think about mega trends going forward, we see customers, both here and internationally, are concerned about issues of provenance and trust in the supply chain,” he said.

“There are big changes in consumer behaviour, whether it’s driven by urbanisation or technology, and we need to be at the forefront of that.”

As such, what Bega Cheese is thinking from here: Get this deal done and be ready for the next.

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